Retirement & Financial Planning Report

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While it’s common advice that retirees should avoid borrowing if possible, situations could arise when it will be necessary. Where to turn?

If you are a homeowner, you might take out a home equity line of credit or borrow against an existing one. If you’re at least 62 with a home that’s not heavily mortgaged, you might consider taking out a reverse mortgage. You’ll get tax-free cash and no repayments are due until you die or move out of the house.

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On the downside, these loans are expensive. Moreover, reverse mortgages aren’t for those eager to bequeath their home to heirs—most or even all of the home’s equity may be eaten up by the loan principal and interest.

Therefore, reverse mortgages work best for older Americans who need cash, who want to remain in their homes, and who have few other options. When the homeowner moves, sells the house or dies, the loan becomes due. If the house is held until death, the heirs may be able to take out a conventional mortgage, pay off the reverse mortgage, and go on living there.

Other possibilities include loans against your life insurance or your securities portfolio. Of course, you must be careful not to borrow to excess. You might trigger margin calls on your securities or see your life insurance lapse. Also, heavy borrowing may lead to interest payments you can’t manage.

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